Mr.

Nicholas (Bra Nick) Maibela

© 2006 Prentice Hall, Inc. 1–1

 Operations
Management
Chapter 1 –
Operations and Productivity
PowerPoint presentation to accompany
Heizer/Render
Principles of Operations Management, 6e
Operations Management, 8e

© 2006
© 2006 Prentice
Prentice Hall, Inc. Hall, Inc. 1–2
 Outline
 Global Company Profile: Hard Rock
Cafe
 What Is Operations Management?
 Organizing To Produce Goods And
Services
 Why Study OM?
 What Operations Managers Do
 How This Book Is Organized

© 2006 Prentice Hall, Inc. 1–3

 Outline - Continued
 The Heritage Of Operations
Management
 Operations In The Service Sector
 Differences Between Goods And
Services
 Growth Of Services
 Service Pay
 Exciting New Trends In Operations
Management
© 2006 Prentice Hall, Inc. 1–4
 Outline - Continued
 The Productivity Challenge
 Productivity Measurement
 Productivity Variables
 Productivity And The Service Sector
 Ethics And Social Responsibility

© 2006 Prentice Hall, Inc. 1–5

 Learning Objectives
When you complete this chapter,
you should be able to:
Identify or Define:

 Production and productivity

 Operations management (OM)
 What operations managers do
 Services

© 2006 Prentice Hall, Inc. 1–6

 Learning Objectives
When you complete this chapter,
you should be able to:
Describe or Explain :
 A brief history of operations
management
 Career opportunities in operations
management
 The future of the discipline
 Measuring productivity
© 2006 Prentice Hall, Inc. 1–7
 What Is Operations
Management?

Production is the creation of

goods and services
Operations management (OM) is
the set of activities that creates
value in the form of goods and
services by transforming inputs
into outputs

© 2006 Prentice Hall, Inc. 1–8

 Organizing to Produce
Goods and Services
 Essential functions:
 Marketing – generates demand
 Production/operations – creates
the product
 Finance/accounting – tracks how
well the organization is doing, pays
bills, collects the money

© 2006 Prentice Hall, Inc. 1–9

 Organizational Charts
Commercial Bank

Operations Finance Marketing

Teller Investments Loans
Scheduling Security Commercial
Check Clearing Real estate Industrial
Collection Financial
Transaction Accounting Personal
processing
Facilities Mortgage
design/layout
Auditing
Vault operations
Trust Department
Maintenance
Security
Figure 1.1(A)
© 2006 Prentice Hall, Inc. 1 – 10
 Organizational Charts
Airline

Operations Finance/ Marketing

Ground support accounting Traffic
equipment Accounting administration
Maintenance Payables Reservations
Ground Operations Receivables Schedules
General Ledger Tariffs (pricing)
Facility
maintenance Finance Sales
Catering Cash control Advertising
Flight Operations International
exchange
Crew scheduling
Flying
Communications
Dispatching
Management science Figure 1.1(B)
© 2006 Prentice Hall, Inc. 1 – 11
 Organizational
Manufacturing
Charts

Operations Finance/ Marketing

Facilities accounting Sales
Construction; maintenance Disbursements/ promotion
Production and inventory control credits Advertising
Scheduling; materials control Receivables Sales
Quality assurance and control Payables
General ledger Market
Supply-chain management research
Manufacturing Funds Management
Tooling; fabrication; assembly Money market
Design International
Product development and design exchange
Detailed product specifications Capital requirements
Industrial engineering Stock issue
Efficient use of machines, space, Bond issue
and personnel
and recall
Process analysis
Development and installation of
production tools and equipment Figure 1.1(C)
© 2006 Prentice Hall, Inc. 1 – 12
 Why Study OM?
 OM is one of three major functions
(marketing, finance, and operations)
of any organization
 We want (and need) to know how
goods and services are produced
 We want to understand what
operations managers do
 OM is such a costly part of an
organization
© 2006 Prentice Hall, Inc. 1 – 13
 What Operations
Managers Do
Basic Management Functions
 Planning
 Organizing
 Staffing
 Leading
 Controlling
© 2006 Prentice Hall, Inc. 1 – 14
 Ten Critical Decisions
Ten Decision Areas Chapter(s)
 Service and product design 5
 Quality management 6
6 Supplement
 Process and capacity 7
design 7 Supplement
 Location 8
 Layout design 9
 Human resources, 10
job design 10 Supplement
 Supply-chain 11
management 11 Supplement
 Inventory management 12, 14, 16
 Scheduling 13, 15
 Maintenance 17 Table 1.2
© 2006 Prentice Hall, Inc. 1 – 15
 The Critical Decisions
 Service and product design
 What good or service should we
offer?
 How should we design these products
and services?
 Quality management
 How do we define quality?
 Who is responsible for quality?

Table 1.2 (cont.)

© 2006 Prentice Hall, Inc. 1 – 16
 The Critical Decisions
 Process and capacity design
 What process and what capacity will
these products require?
 What equipment and technology is
necessary for these processes?
 Location
 Where should we put the facility?
 On what criteria should we base the
location decision?
Table 1.2 (cont.)
© 2006 Prentice Hall, Inc. 1 – 17
 The Critical Decisions
 Layout design
 How should we arrange the facility
and material flow?
 How large must the facility be to meet
our plan?
 Human resources and job design
 How do we provide a reasonable work
environment?
 How much can we expect our
employees to produce?
Table 1.2 (cont.)
© 2006 Prentice Hall, Inc. 1 – 18
 The Critical Decisions
 Supply-chain management
 Should we make or buy this component?
 Who are our suppliers and who can
integrate into our e-commerce program?
 Inventory, material requirements
planning, and JIT
 How much inventory of each item should
we have?
 When do we re-order?
Table 1.2 (cont.)
© 2006 Prentice Hall, Inc. 1 – 19
 The Critical Decisions
 Intermediate and short–term
scheduling
 Are we better off keeping people on
the payroll during slowdowns?
 Which jobs do we perform next?
 Maintenance
 Who is responsible for maintenance?
 When do we do maintenance?

Table 1.2 (cont.)

© 2006 Prentice Hall, Inc. 1 – 20
 Where are the OM Jobs?

© 2006 Prentice Hall, Inc.

Figure 1.2 1 – 21
 Where are the OM Jobs?
 Technology/methods
 Facilities/space utilization
 Strategic issues
 Response time
 People/team development
 Customer service
 Quality
 Cost reduction
 Inventory reduction
 Productivity improvement
© 2006 Prentice Hall, Inc. 1 – 22
 Significant Events in OM

Figure 1.3

© 2006 Prentice Hall, Inc. 1 – 23

 The Heritage of OM
 Division of labor (Adam Smith 1776;
Charles Babbage 1852)
 Standardized parts (Whitney 1800)
 Scientific Management (Taylor 1881)
 Coordinated assembly line (Ford/
Sorenson/Avery 1913)
 Gantt charts (Gantt 1916)
 Motion study (Frank and Lillian Gilbreth
1922)
 Quality control (Shewhart 1924; Deming
1950)
© 2006 Prentice Hall, Inc. 1 – 24
 The Heritage of OM
 Computer (Atanasoff 1938)
 CPM/PERT (DuPont 1957)
 Material requirements planning (Orlicky
1960)
 Computer aided design (CAD 1970)
 Flexible manufacturing system (FMS 1975)
 Baldrige Quality Awards (1980)
 Computer integrated manufacturing (1990)
 Globalization (1992)
 Internet (1995)
© 2006 Prentice Hall, Inc. 1 – 25
 Eli Whitney
 Born 1765; died 1825
 In 1798, received government
contract to make 10,000 muskets
 Showed that machine tools could
make standardized parts to exact
specifications
 Musket parts could be used in any
musket

© 2006 Prentice Hall, Inc. 1 – 26

 Frederick W. Taylor
 Born 1856; died 1915
 Known as ‘father of scientific
management’
 In 1881, as chief engineer for
Midvale Steel, studied how tasks
were done
 Began first motion and time studies
 Created efficiency principles

© 2006 Prentice Hall, Inc. 1 – 27

 Taylor’s Principles
Management Should Take More
Responsibility for:
 Matching employees to right job
 Providing the proper training
 Providing proper work methods and
tools
 Establishing legitimate incentives for
work to be accomplished

© 2006 Prentice Hall, Inc. 1 – 28

 Frank & Lillian Gilbreth
 Frank (1868-1924); Lillian (1878-
1972)
 Husband-and-wife engineering team
 Further developed work
measurement methods
 Applied efficiency methods to their
home and 12 children!
 Book & Movie: “Cheaper by the
Dozen,” book: “Bells on Their Toes”
© 2006 Prentice Hall, Inc. 1 – 29
 Henry Ford
 Born 1863; died 1947
 In 1903, created Ford Motor
Company
 In 1913, first used moving assembly
line to make Model T
 Unfinished product moved by
conveyor past work station
 Paid workers very well for 1911
($5/day!)
© 2006 Prentice Hall, Inc. 1 – 30
 W. Edwards Deming
 Born 1900; died 1993
 Engineer and physicist
 Credited with teaching Japan
quality control methods in post-
WW2
 Used statistics to analyze process
 His methods involve workers in
decisions
© 2006 Prentice Hall, Inc. 1 – 31
 Contributions From
 Human factors
 Industrial engineering
 Management science
 Biological science
 Physical sciences
 Information science

© 2006 Prentice Hall, Inc. 1 – 32

 Characteristics of Goods
 Tangible product
 Consistent product
definition
 Production usually
separate from
consumption
 Can be inventoried
 Low customer
interaction

© 2006 Prentice Hall, Inc. 1 – 33

 Characteristics of Service
 Intangible product
 Produced and
consumed at same time
 Often unique
 High customer
interaction
 Inconsistent product
definition
 Often knowledge-based
 Frequently dispersed
© 2006 Prentice Hall, Inc. 1 – 34
 Industry and Services as
Percentage of GDP
90 −
Services Manufacturing
80 −
70 −
60 −
50 −
40 −
30 −
20 −
10 −
0−

Mexico
Canada

UK
Spain
Czech Rep

Hong Kong

Japan

Russian Fed
Australia

China

Germany

South Africa
France

US
© 2006 Prentice Hall, Inc. 1 – 35
 Goods Versus Services
Attributes of Goods Attributes of Services
(Tangible Product) (Intangible Product)
Can be resold Reselling unusual
Can be inventoried Difficult to inventory
Some aspects of quality Quality difficult to measure
measurable
Selling is distinct from Selling is part of service
production
Product is transportable Provider, not product, is
often transportable
Site of facility important for cost Site of facility important for
customer contact
Often easy to automate Often difficult to automate
Revenue generated primarily Revenue generated primarily
from tangible product from the intangible service

© 2006 Prentice Hall, Inc.

Table 1.3 1 – 36
 Goods and Services
Automobile
Computer
Installed carpeting
Fast-food meal
Restaurant meal/auto repair
Hospital care
Advertising agency/
investment management
Consulting service/
teaching
Counseling
100% 75 50 25 0 25 50 75 100%
| | | | | | | | |

Percent of Product that is a Good Percent of Product that is a Service

Figure 1.4
© 2006 Prentice Hall, Inc. 1 – 37
 Organizations in Each Sector
% of all
Service Sector Example Jobs
Professional Universities 25.5
Services, Hospital , etc.
Education,
Legal, Medical
Trade (retail, Wal-Mart, Pick&Pay 20.6
wholesale) etc.
Utilities, Gas & Electricity, 7.1
Transportation Airlines, Trains etc.

Table 1.4
© 2006 Prentice Hall, Inc. 1 – 38
 Development of the
Service Economy
100
90 Services
80
70
M
60 an
uf
50 ac
tu
40 rin
g
30
Agriculture
20
10
0
1800 1850 1900 1950 2000
Figure 1.5 (A)
© 2006 Prentice Hall, Inc. 1 – 39
 New Trends in OM
Past Causes Future
Local or Low-cost, reliable Global focus
national worldwide communication
focus and transportation
networks
Batch (large) Short product life cycles Just-in-time
shipments and cost of capital put shipments
pressure on reducing
inventory
Low-bid Quality emphasis requires Supply-
purchasing that suppliers be engaged chain
in product improvement partners,
Enterprise
Resource
Planning,
e-commerce

Figure 1.6
© 2006 Prentice Hall, Inc. 1 – 40
 New Trends in OM
Past Causes Future
Lengthy Shorter life cycles, Rapid product
product Internet, rapid international development,
development communication, computer- alliances,
aided design, and collaborative
international collaboration designs
Standardized Affluence and worldwide Mass
products markets; increasingly customization
flexible production with added
processes emphasis on
quality
Job Changing socioculture Empowered
specialization milieu; increasingly a employees,
knowledge and information teams, and
society lean
production

Figure 1.6
© 2006 Prentice Hall, Inc. 1 – 41
 New Trends in OM
Past Causes Future
Low-cost Environmental issues, ISO Environmentally
focus 14000, increasing disposal sensitive
costs production,
green
manufacturing,
recycled
materials,
remanufacturing

Figure 1.6
© 2006 Prentice Hall, Inc. 1 – 42
 Productivity Challenge

Productivity is the ratio of outputs (goods

and services) divided by the inputs
(resources such as labor and capital)

The objective is to improve this

measure of efficiency

Important Note!
Production is a measure of output
only and not a measure of efficiency

© 2006 Prentice Hall, Inc. 1 – 43

 The Production Process
Inputs Processes Outputs

Labor, • Assembling Goods

capital, • Cutting and
management services
• Drilling
• Screwing
• Inspection
• Etc.

Feedback loop

Figure 1.7

© 2006 Prentice Hall, Inc. 1 – 44

 Multi-Factor Productivity
Output
Productivity = Input used

Output
Single-factor Productivity = Input used

Output
Multifactor Productivity = Labor + Material + Energy + Capital +
Miscellaneous

 Also known as total factor productivity

 Output and inputs are often expressed
in dollars or Rands
© 2006 Prentice Hall, Inc. 1 – 45
 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

productivity = 32 labor-hrs

© 2006 Prentice Hall, Inc. 1 – 46

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day

Old labor 8 titles/day

productivity = 32 labor-hrs = .25 titles/labor-hr

© 2006 Prentice Hall, Inc. 1 – 47

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

productivity = 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day

productivity = 32 labor-hrs

© 2006 Prentice Hall, Inc. 1 – 48

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old labor 8 titles/day

productivity = 32 labor-hrs = .25 titles/labor-hr

New labor 14 titles/day

productivity = 32 labor-hrs = .4375 titles/labor-hr

© 2006 Prentice Hall, Inc. 1 – 49

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = $640 + 400

© 2006 Prentice Hall, Inc. 1 – 50

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = $640 + 400 = .0077 titles/dollar

© 2006 Prentice Hall, Inc. 1 – 51

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = $640 + 400 = .0077 titles/dollar

New multifactor 14 titles/day

productivity = $640 + 800

© 2006 Prentice Hall, Inc. 1 – 52

 Collins Title Productivity
Old System:
Staff of 4 works 8 hrs/day 8 titles/day
Payroll cost = $640/day Overhead = $400/day
New System:
14 titles/day Overhead = $800/day

Old multifactor 8 titles/day

productivity = $640 + 400 = .0077 titles/dollar

New multifactor 14 titles/day

productivity = $640 + 800 = .0097 titles/dollar

© 2006 Prentice Hall, Inc. 1 – 53

 Measurement Problems

 Quality may change while the

quantity of inputs and outputs
remains constant
 External elements may cause an
increase or decrease in productivity
 Precise units of measure may be
lacking

© 2006 Prentice Hall, Inc. 1 – 54

 Productivity Variables

 Labor - contributes about 10% of

the annual increase
 Capital - contributes about 32%
of the annual increase
 Management - contributes about
52% of the annual increase

© 2006 Prentice Hall, Inc. 1 – 55

 Ethics and Social Responsibility

Challenges facing
operations managers:
 Developing safe quality products
 Maintaining a clean environment
 Providing a safe workplace
 Honoring community commitments

© 2006 Prentice Hall, Inc. 1 – 56